No. 2198 Oct. Term 1978, No. 2220 Oct. Term 1978, Appeal from the Order of the Court of Common Pleas of Delaware County, Civil Action, Law at No. 76-1027.
Paul J. Donnelly, Philadelphia, for appellants.
Marc J. Sonnenfeld, Philadelphia, for appellees.
Spaeth, Stranahan and Sugerman, JJ.*fn*
[ 278 Pa. Super. Page 160]
This is an appeal from an order entering summary judgment and directing the pro-rata distribution of funds in the court's possession.
This action has its origins in a contract between B. Bornstein and Son, Inc., a construction company, and Springpenn Properties Corp., which is a wholly owned subsidiary of R.H. Macy and Company, Inc., for the construction of a Bamberger's department store in Delaware County. When the store was completed, there remained due a contract balance of $147,396.00. Under the terms of the contract, Bornstein could not receive this balance until it delivered to Macy-Springpenn satisfactory evidence that all subcontractors and materialmen had been paid and a release of liens signed by all persons who had either supplied material or worked on the project.*fn1 When Bornstein failed to deliver such evidence
[ 278 Pa. Super. Page 161]
or release, Macy-Springpenn withheld the balance, although no subcontractor or materialman had filed any lien against the project. Bornstein then brought suit against Macy-Springpenn to recover the balance. Macy-Springpenn filed a petition for interpleader on the ground that various of Bornstein's subcontractors and materialmen had not been paid. The lower court granted the petition, and Macy-Springpenn paid the $147,396.00 balance into the court. Twelve of Bornstein's subcontractors, including appellee Williard, Inc., filed claims totaling $341,363.84. Three of Bornstein's judgment creditors, one of which was appellant Consho Construction Company, filed claims unrelated to the Bamberger's project. Three of the subcontractors, including Williard, filed alternative claims as judgment creditors, and one of them, appellant Powertherm Corporation, filed an alternative claim as a judgment creditor and another alternative claim as an assignee of Bornstein's right to the contract balance. Williard then filed a motion for summary judgment on behalf of the twelve subcontractors. The motion asked that claims not filed on behalf of unpaid subcontractors be dismissed, and that the contract balance paid into court be distributed among the twelve unpaid subcontractors on a pro rata basis. The lower court granted the motion, and Consho and Powertherm appealed; these appeals were consolidated and will be disposed of together.*fn2
[ 278 Pa. Super. Page 162]
In its opinion justifying its order, the lower court held that Bornstein had materially breached its contract with Macy-Springpenn when it failed to deliver satisfactory evidence of payment of subcontractors and materialmen and the requisite release of liens. Having thus decided that neither Bornstein, its creditor Consho, nor its assignee Powertherm had any right to the withheld balance, the court held that the twelve unpaid subcontractors were entitled to it. The court based its holding on two grounds: first, it would be "inequitable and unjust" to permit Macy-Springpenn to keep the balance when the subcontractors had outstanding claims against Bornstein: and second, the subcontractors were third party beneficiaries of the contract between Macy-Springpenn and Bornstein.
We find ourselves unable to agree with the lower court that Bornstein's failure to deliver satisfactory evidence that all subcontractors and materialmen had been paid and a release of liens constituted a material breach of the contract. As noted above, no claimant had filed a lien against the project at its completion. Nor could any such lien be filed when Macy-Springpenn filed its petition for interpleader, for by then more than four months had elapsed since the completion of the work. 49 P.S. § 1502 (Purdon's 1965). In C.A. Klinges, Inc. v. Camblos Construction Corporation, 194 Pa. Super. 585, 168 A.2d 916 (1961), this court faced a similar case. Klinges, an unpaid subcontractor with a judgment against the Camblos Construction Corporation, was trying to garnish funds in the possession of the Trustees of the University of Pennsylvania. The Trustees had entered into a contract with the Camblos Construction Corporation, by the terms of which the Trustees were permitted to withhold final payment until the construction company had delivered a "complete release of all liens arising out of this contract, or receipts in full covering all labor and materials for which a lien could be filed, or a bond satisfactory to the [Trustees] indemnifying [them] against any lien." 194 Pa. Super. at 588, 168 A.2d at 917. In holding that the subcontractor
[ 278 Pa. Super. Page 163]
could garnish the funds as properly belonging to Camblos Construction Company, we stated that the construction company's failure to file the requisite release of liens was not a material breach of its contract because no liens had been filed against the owner's property and none could be since the statutory period had passed. We noted: "[T]he [owner] has received all it could have hoped to receive under the terms of this contract, and stands in a position to lose nothing by the payment of [the contract balance]." 194 Pa. Super. at 591, 168 A.2d at 919. Moreover, in Getty v. Pennsylvania Institute for Instruction of the Blind, 194 Pa. 571, 45 A. 333 (1900), another case in which an owner withheld a contract balance because a contractor had not submitted proper evidence that all subcontractors and materialmen had been paid, the Supreme Court stated that the contractor would be entitled to withheld balance when it furnished the owner with the required acknowledgements of payment "or when, under the limitations of the mechanic's lien law, the [owner] is beyond peril as to liens against its buildings and grounds, . . . ." 194 Pa. at 576, 45 A. at 334.
The lower court attempted to distinguish Klinges by pointing out that the contract in that case, unlike the one here, lacked a "no-lien" provision. To the extent that this is a distinction, it makes Klinges more, not less, applicable. The presence of a "no-lien" provision demonstrates Macy-Springpenn's concern that no liens would be filed against its property. Accordingly, when that danger had passed Macy-Springpenn "[stood] in a position to lose nothing by the payment of [the contract balance]."
Appellee has cited several cases, in particular Jacobs v. Northeastern Corporation, 416 Pa. 417, 206 A.2d 49 (1965), and Lancaster Co. Nat. Bank's Appeal, 304 Pa. 437, 155 A. 73 (1931), for the proposition that Bornstein committed a material breach of its contract with Macy-Springpenn.*fn3 These
[ 278 Pa. Super. Page 164]
cases are discussed later in this opinion, in a different context.*fn4 For the moment it is enough to say that we do not find them inconsistent with Getty and Klinges. In both Jacobs and Lancaster the issue was whether a surety was entitled to recover funds it had paid subcontractors, upon the contractor's failure to pay the subcontractors. In neither case was the Court obliged to decide whether the contractor had materially breached its contract with the owner.
No material breach having occurred, Bornstein had a right to the balance due on its contract with Macy-Springpenn. It follows that appellants as judgment creditors and appellant Powertherm as assignee have a right in Bornstein's place*fn5 to proceed against that part of the unpaid balance that was paid into and has been withheld by the lower court.
The foregoing conclusion does not end our inquiry, for we must still determine what right to the withheld balance the unpaid subcontractors may also have.
One possible basis of a right by the unpaid subcontractors to proceed against the withheld balance would be evidence of an independent promise by Macy-Springpenn that as owner it would pay the subcontractors if Bornstein as contractor did not. Appellants contend, however, that there was no such independent promise; in support of this contention they ...